Summary:
We propose migrating AMKT from AMKT V1 to AMKT V2.
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AMKT V1 has trust assumptions including custody, rebalancing, and permissioned minting/burning.
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AMKT V2 eliminates these trust assumptions. Custody is entirely onchain. Rebalancing is decentralized.
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V2 trade-offs include a reduction in the number of assets in the index from 25 to 15 and an increase in the surface area for smart contract exploits.
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V2 benefits include a lower cost structure (and ability to lower fees), secure decentralization that enables AMKT to open up to more jurisdictions, and fewer trust assumptions for developers building on top of AMKT.
Motivation:
In 1960, economists Edward Renshaw and Paul Feldstein wrote a paper titled “the case for an unmanaged investment company” that laid out the thesis for the modern index fund. It suggested that active management doesn’t outperform a benchmark that simply tracks the broader market, meaning investors would be better off simply “buying the market”.
Implementations have since saved regular investors billions in fees and helped chart a path to retirement for millions of savers.
Yet 63 years later, no one has actually achieved an “unmanaged” index product. Existing products are loaded with intermediaries that are subject to human error[1], corruption[2], and cost bloat [3].
AMKT V2 aims to be the first truly “unmanaged” index product, enabling index products to operate autonomously, with a lower fee structure than previously possible.
Implementation:
AMKT V2 seeks to turn all of the administrative functions surrounding the operations of an index-linked product into smart contract code that removes the need for third party intermediaries.
AMKT V1 contains custodial trust assumptions with assets held with Coinbase Custody, aspects of the protocol like minting and redeeming AMKT are permissioned, proof of reserves are done via Chainlink, and elements of the AMKT rebalance are not completely automated.
AMKT V2 moves custody of the underlying assets to Ethereum, leaving the protocol completely self-custodied, uncensorable, with collateral verifiable entirely on-chain.
AMKT V2 will be natively deployed to Ethereum Mainnet, with liquidity available on multiple L2s including Arbitrum and Optimism.
Minting and redeeming AMKT is more widely accessible in V2, giving users the ability to support the network by capturing incentives for keeping AMKT pegged to the net asset value of the underlying assets. Users bring the underlying assets to the protocol to mint AMKT as an ERC20 token, and bring AMKT to the protocol to burn the token and redeem for underlying assets.
AMKT rebalancing is executed via a bounty system that incentivizes users to verify constituent weights and ensure seamless trade execution.
We are proposing AMKT holders vote to upgrade the existing AMKT contract to ensure seamless migration to V2 for holders.
Risk Factors:
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Constituent assets are secured entirely on-chain vs. Coinbase Custody. This opens the protocol up to more smart contract risk. V2 has been audited by a team of independent auditors and top security researchers at Spearbit. There will be a bug bounty program powered by ImmuneFi designed to discover security vulnerabilities.
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Migration from V1 to V2 includes transferring assets from custody to the AMKT smart contract. AMKT holders could be adversely impacted if there are errors involved in this migration.
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AMKT V2 can only support assets available on Ethereum, meaning the number of assets will be reduced from 25 to 15. This may adversely impact AMKT’s ability to most accurately track the market and leaves AMKT holders with a less diversified basket of assets.
Conclusion:
We recommend AMKT holders vote to upgrade to V2, which will ensure AMKT is built on a strong, decentralized foundation. As a reminder, this will live in Discuss first and then go to a full snapshot vote. We’ll link out to the two security audits and full V2 whitepaper there.